2023 (7) TMI 1241

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..... laced under the Prevention of Money Laundering (Maintenance of Records) Rules 2005. PayPal asserts that it is not a "payment system operator" as defined under the PMLA and consequently it would be erroneous for FIU-IND to hold it to be a Reporting Entity. This is asserted on the basis of it not being engaged in rendering services relating to clearing, payment or provision of settlement between a payer and a beneficiary. It essentially avers that it merely provides a technological interface enabling export related transactions that may be undertaken by an Indian exporter and an overseas buyer. It is its categorical case that in the chain of transaction which ensues between the Indian exporter and an overseas buyer, PayPal is at no stage engaged in the actual handling of funds. According to it, the transmission of funds occurs between the constituent Authorised Dealer Category-1 Schedule Commercial Banks [AD Banks] which not only collect the amounts from the foreign purchaser directly and without any intervention of PayPal, the said funds are then transmitted to the AD Partner Bank's Export Collection Account. PayPal also relies upon the stand as struck by the Reserve Bank of India [ .....

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..... and similar companies as an operator of a "payment system" under the Payment System Services Act ("PSS Act") by virtue of PayPal providing payment intermediary services. Since the definition of "payment system" under the PMLA and the PSS Act is the same, therefore in our view, the same interpretation should also be applied in case of the definition of a "payment system" under the PMLA, and Pay Pal should not be considered to be a "payment system operator" for the purposes of the PMLA. 5. Further, from our inquiries on the FIU registration process, we are not able to ascertain how payment intermediaries such as PayPal can register. For example, on the 'Reporting entity number' (registration number or any number used in correspondence with the regulator). Since PayPal is not a regulated entity, we do not have any registration number or authorization letter directly from RBI which we use in correspondence with regulator nor we have any direct formal engagement with them. All formal interactions with RBI are made through the nodal, AD and acquiring banks only. 6. Additionally, we have been advised by an external law firm that payment intermediary companies such as PayPal sh .....

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..... nline Payment Gateway Service Providers ("OPGSP") and processes export related receipts from exporters in arrangement with an AD Category - 1 Schedule Commercial Bank. We request that the contents of our letter dated 17 April 2018 to the FIU-IND may be read as part of the present reply. 5. We would like to clarify that PayPal is classified as a payment intermediary and not a 'payment system operator' under the rules and regulations issued by the RBI in this respect. A payment system intermediary, such as PayPal, is required to comply with the Payment Intermediary Circular which provides for a separate regime regulating the functioning of the payment system intermediaries. 6. PayPal's business in India of providing payment processing services and facilitation of processing and settlement of import and export related payments is governed under the framework prescribed by the RBI-"Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers". While providing such services, PayPal operates as an OPGSP and is compliant with the applicable RBI regulatory framework. 7. It is submitted that the RBI does not consider .....

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..... 07 Act. Dealing further with the subject of processing and settlement of import and export related payments facilitated specifically by OPGSPs, RBI had issued a subsequent circular dated 24 September 2015. This was in addition to the guidelines which had been circulated by RBI for regulation of Payment Aggregators and Payment Gateways on 17 March 2020. In order to understand the concept of Payment Aggregators [PA] and OPGSPs it would be pertinent to firstly advert to the Intermediary Directions issued on 24 November 2009 [Intermediary Directions] and which defined intermediaries engaged in facilitating electronic and online payments. The said directions are reproduced hereinbelow: - "Directions for opening and operation of Accounts and settlement of payments for electronic payment transactions involving intermediaries 1. Introduction 1.1 The use of Electronic/Online Payment modes for payments to merchants for goods and services like bill payments, online shopping etc. has been gaining popularity in the country. The increased facilitation by banks and prepaid payment instrument issuers of the use of electronic modes by customers for payments to merchants generally involves the .....

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..... se directions, merchants shall include all Electronic commerce/Mobile commerce service providers and other persons (including but not limited to utility service providers) who accept payments for goods and service provided by them, through Electronic/Online Payment modes. 3. Maintaining of accounts for collection of payments 3.1 All accounts opened and maintained by banks for facilitating collection of payments by intermediaries from customers of merchants, shall be treated as internal accounts of the banks. While it is left to the banks to decide on the exact nomenclature of such accounts it shall be ensured that such accounts are not maintained or operated by the intermediaries. 3.2 Banks shall ensure that the process of converting all the existing accounts maintained and operated by intermediaries for the purpose covered in these directions shall be completed within three months of issuance of these directions. 3.3 For the sake of further clarity, the permitted credits/debits in these accounts are set out below: i. Credits a) Payments from various persons towards purchase of goods/services. b) Transfers from other banks as per pre-determined agreement into the acco .....

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..... and Settlement System, Reserve Bank of India, on a quarterly basis. 7. Instruction applicable to other payment system operators 7.1 All persons authorized to operate payment system for issuance of prepaid payment instruments and card schemes shall facilitate compliance with these directions." 5. In terms of the circular of 24 September 2015, RBI permitted AD Category- I Banks to offer facilities similar to those as provided by OPGSPs by entering into standing arrangements with the latter. It becomes pertinent to note that the aforenoted circular was preceded by the circular dated 16 November 2010 which had permitted similar arrangements with respect to exports. The aforenoted two circulars thus enabled AD Category I Banks to enter into standing arrangements with OPGSPs both with respect to exports as well as imports. The relevant parts of the aforesaid circulars are extracted hereinbelow:- Circular of 24 September 2015 "4. Export transactions As already notified vide our A. P. (DIR Series) Circular No. 109 dated June 11, 2013 and A.P. (DIR Series) Circular No. 17 dated November 16, 2010 referred to earlier: (i) the facility shall only be available for export of goods a .....

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..... value not exceeding USD 500 (US Dollar five hundred). (iii) AD Category-I banks providing such facilities shall open a NOSTRO collection account for receipt of the export related payments facilitated through such arrangements. Where the exporters availing of this facility are required to open notional accounts with the OPGSP, it shall be ensured that no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD Category-I bank. (iv) A separate NOSTRO collection account may be maintained for each OPGSP or the bank should be able to delineate the transactions in the NOSTRO account of each OPGSP. (v) The following debits will only be permitted to the NOSTRO collection account opened under this arrangement: a) Repatriation of funds representing export proceeds to India for credit to the exporters' account; (b) Payment of fee/commission to the OPGSP as per the predetermined rates / frequency/ arrangement; and (c) Charge back to the importer where the exporter has failed in discharging his obligations under the sale contract. (vi) The balances held in the NOSTRO collection .....

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..... , the PAs and PGs are defined as under: 1.1.1. PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own. PAs facilitate merchants to connect with acquirers. In the process, they receive payments from customers, pool and transfer them on to the merchants after a time period. 1.1.2. PGs are entities that provide technology infrastructure to route and facilitate processing of an online payment transaction without any involvement in handling of funds. 1.2. In the processing of an online transaction the following timelines are involved: * 'Tp' - date of charge / debit to the customer's account against the purchase of goods / services. * 'Ts' - date of intimation by the merchant to the intermediary about shipment of goods. * 'Td' - date of confirmation by the merchant to the intermediary about delivery of goods to the customer. * 'Tr' - date of expiry of refund period as fixed by the merchant." 7. In terms of Clause 2.1, RBI clarified that while the guidelines would be applica .....

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..... ubmit a certificate in the enclosed format from their Chartered Accountants (CA) to evidence compliance with the applicable net-worth requirement while submitting the application for authorisation. Newly incorporated non-bank entities which may not have an audited statement of financial accounts shall submit a certificate in the enclosed format from their Chartered Accountants regarding the current net-worth along with provisional balance sheet. 4.7. PAs that are not able to comply with the net-worth requirement within the stipulated time frame (as given at clauses 4.1 & 4.2) shall wind-up payment aggregation business. The banks maintaining nodal / escrow accounts of such entities shall monitor and report compliance in this regard. 5. Governance 5.1. PAs shall be professionally managed. The promoters of the entity shall satisfy the fit and proper criteria prescribed by RBI. The directors of the applicant entity shall submit a declaration in the enclosed format. RBI shall also check 'fit and proper' status of the applicant entity and management by obtaining inputs from other regulators, government departments, etc., as deemed fit. Applications of those entities not meeting t .....

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..... nt on- boarding. 7.2. PAs shall undertake background and antecedent check of the merchants, to ensure that such merchants do not have any malafide intention of duping customers, do not sell fake / counterfeit/ prohibited products, etc. The merchant's website shall clearly indicate the terms and conditions of the service and time-line for processing returns and refunds. 7.3. PAs shall be responsible to check Payment Card Industry- Data Security Standard (PCI-DSS) and Payment Application-Data Security Standard (PA-DSS) compliance of the infrastructure of the merchants on-boarded. 7.4. Merchant site shall not save customer card and such related data. A security audit of the merchant may be carried out to check compliance, as and when required. 7.5. Agreement with merchant shall have provision for security / privacy of customer data. Pas agreement with merchants shall include compliance to PA-DSS and incident reporting obligations. The PAs shall obtain periodic security assessment reports either based on the risk assessment (large or small merchants) and / or at the time of renewal of contracts. 8. Settlement and Escrow Account Management 8.1. Non-bank PAs shall maintain th .....

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..... mention such transactions. 8.9.1.1. Credits a) Payment from various customers towards purchase of goods / services. b) Pre-funding by merchants / PAs. c) Transfer representing refunds for failed / disputed / returned / cancelled transactions. d) Payment received for onward transfer to merchants under promotional activities, incentives, cash-backs etc. 8.9.1.2. Debits a) Payment to various merchants / service providers. b) Payment to any other account on specific directions from the merchant. c) Transfer representing refunds for failed / disputed transactions. d) Payment of commission to the intermediaries. This amount shall be at pre-determined rates / frequency. e) Payment of amount received under promotional activities, incentives, cash-backs, etc. 8.10. For banks the outstanding balance in the escrow account shall be part of the 'net demand and time liabilities' (NDTL) for the purpose of maintenance of reserve requirements. This position shall be computed on the basis of the balances appearing in the books of the bank as on the date of reporting. 8.11. The entity and the escrow account banker shall be responsible for compliance with RBI instructions is .....

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..... uch form of deposits. 8.15.5. The core portion shall be calculated separately for each of the escrow accounts and will remain linked to the respective escrow account. The escrow balance and core portion maintained shall be clearly disclosed in the auditors' certificates submitted to RBI on quarterly and annual basis. Note: For the purpose of this regulation, "Core Portion" shall be computed as under: Step 1: Compute lowest daily outstanding balance (LB) in the escrow account on a fortnightly (FN) basis, for 26 fortnights from the preceding month. Step 2: Calculate the average of the lowest fortnightly outstanding balances [(LB1 of FN1+ LB2 of FN2+ ........+ LB26 of FN26) divided by 26]. Step 3: The average balance so computed represents the "Core Portion" eligible to earn interest." C. ESSENTIAL FACTS 8. Reverting then to the facts of the present case FIU-IND is stated to have granted an opportunity of personal hearing to PayPal in terms of its letter of 21 November 2019 and invited it to make a presentation before it on 09 December 2019. After the aforesaid meeting PayPal filed detailed written submissions dated 20.12.2019. Apart from the contentions which it raised in .....

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..... ct from 01 April 2021. On 17 December 2020, the impugned order came to be passed. On 12 January 2021 after considering detailed submissions addressed by respective sides, a learned Judge of this Court framed the following directions: - "11. The stand of the RBI in the affidavit referred above appears to be in contrast with the view taken in the impugned order. The RBI and Union of India ought to take a clear stand after due consultation as to whether they consider platforms such as that of the Petitioners as being within the purview of the PML Act. Accordingly, the Secretary, Ministry of Finance, is directed to constitute a Committee with a nominee of the RBI and the Ministry of Finance, to clarify their position as to whether companies like the Petitioners who claim to , be facilitators of monetary transactions, both in foreign exchange and in Indian Rupees, ought to be categorised as "payment system operators" and hence "reporting entities" under the PML Act. Let the Committee meet within ten days and the conclusion of the Committee be filed, by way of an affidavit, within two weeks thereafter. 12. In the meantime, the following directions are issued: i. The Petitioner shal .....

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..... rds covering ML/TF risks. There is a continued very high ML/TF risk in not covering PayPal and similar entities under PMLA. RBI concurs with the view of the Committee that the interpretation of "payment system" / "payment system operator" definitions in PMLA is the sole mandate of Ministry of Finance. 12. Having discussed all the issues at hand as per the mandate in the order of Hon'ble High Court of Delhi, answers to the two main questions posed by the Hon'ble High Court are unanimously and categorically decided and are as follows: (i) Yes, Government of India considers entities such as that of the petitioners as being covered within the purview of the Prevention of Money Laundering Act, 2002. (ii) Yes, companies like PayPal, who claim to be facilitators of monetary transactions, both in foreign exchange and in Indian Rupee, are categorised as "payment system operators" and hence "reporting entities" under the PML Act." D. PSS ACT & PMLA- THE STATUTORY STRUCTURE 11. In order to appreciate the submissions which were addressed by learned senior counsels appearing for respective sides, it would be apposite to firstly notice the relevant statutory provisions. The 2007 .....

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..... isation from the RBI. That provision reads thus:- "4. Payment system not to operate without authorisation.- (1) No person, other than the Reserve Bank, shall commence or operate a payment system except under and in accordance with an authorisation issued by the Reserve Bank under the provisions of this Act: Provided that nothing contained in this section shall apply to- (a) the continued operation of an existing payment system on commencement of this Act for a period not exceeding six months from such commencement, unless within such period, the operator of such payment system obtains an authorisation under this Act or the application for authorisation made under section 7 of this Act is refused by the Reserve Bank; (b) any person acting as the duly appointed agent of another person to whom the payment is due; (c) a company accepting payments either from its holding company or any of its subsidiary companies or from any other company which is also a subsidiary of the same holding company; (d) any other person whom the Reserve Bank may, after considering the interests of monetary policy or efficient operation of payment systems, the size of any payment system or for an .....

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..... be necessary, in the opinion of the Reserve Bank, to remedy the situation. 18. Power of Reserve Bank to give directions generally.- Without prejudice to the provisions of the foregoing, the Reserve Bank may, if it is satisfied that for the purpose of enabling it to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest, it is necessary so to do, lay down policies relating to the regulation of payment systems including electronic, non-electronic, domestic and international payment systems affecting domestic transactions and give such directions in writing as it may consider necessary to system providers or the system participants or any other person either generally or to any such agency and in particular, pertaining to the conduct of business relating to payment systems." 20. Section 23 which deals with the subject of settlement and netting reads as under:- "23. Settlement and netting.-(1) The payment obligations and settlement instructions among the system participants shall be determined in accordance with the gross or netting procedure, as the case maybe, approved by the Reserve Bank while issuing autho .....

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..... nding anything contained in the Banking Regulation Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) or the Insolvency and Bankruptcy Code, 2016 or any other law for the time being in force, the liquidator or receiver or assignee (by whatever name called) of the central counter party, whether appointed as provisional or otherwise, shall- (a) not re-open any determination that has become final and irrevocable; (b) after appropriating in accordance with the rules, regulations or bye-laws of the central counter party, the collaterals provided by the system participants towards their settlement or other obligations, return the collaterals held in excess to the system participants concerned. Explanation 1.-For the removal of doubts, it is hereby declared that the settlement, whether gross or net, referred to in this section is final and irrevocable as soon as the money, securities, foreign exchange or derivatives or other transactions payable as a result of such settlement is determined, whether or not such money, securities or foreign exchange or derivatives or other transactions is actually paid. Explanation 2.-For the purpos .....

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..... all such persons are paid in full or adequate provision is made therefor. Explanation.-For the purposes of this section, the expressions- (a) "designated payment system" shall mean a payment system or a class of payment system, as may be specified by the Reserve Bank from time to time, engaged in collection of funds from their customers for rendering payment service; "scheduled commercial bank" shall mean a "banking company", "corresponding new bank", "State Bank of India" and "subsidiary bank" as defined in section 5 of the Banking Regulation Act, 1949 (10 of 1949) and included in the Second Schedule to the Reserve Bank of India Act, 1934 (1 of 1934)." 22. A "reporting entity" is defined under section 2(1)(wa) of the PMLA in the following terms:- "(wa) "reporting entity" means a banking company, financial institution, intermediary or a person carrying on a designated business or profession;" 23. The expression "financial institution" is defined in Section 2(1)(l) as follows:- "(l) "financial institution" means a financial institution as defined in clause (c) of section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934) and includes a chit fund company, a housi .....

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..... undivided family, Karta of such Hindu undivided family residing outside India who owns or controls or manages, directly or indirectly, the activities or functions of payment system in India; (C) in the case of a company, a firm, an association of persons, a body of individuals, an artificial juridical person, whether incorporated or not, such company, firm, association of persons, body of individuals, artificial juridical person incorporated or registered outside India or existing as such and which owns or controls or manages, directly or indirectly, the activities or functions of payment system in India;" 26. Chapter IV of the PMLA lays down the obligations of banking companies, financial institutions and intermediaries. Section 12 of the Act reads as under:- "12. Reporting entity to maintain records.- (1) Every reporting entity shall- (a) maintain a record of all transactions, including information relating to transactions covered under clause (b), in such manner as to enable it to reconstruct individual transactions; (b) furnish to the Director within such time as may be prescribed, information relating to such transactions, whether attempted or executed, the nature and .....

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..... g an Aadhaar number, (4) If, for identification of a client or beneficial owner, authentication or offline verification under clause (a) or clause (b) of sub-section (1) is used, neither his core biometric information nor his Aadhaar number shall be stored. (5) Nothing in this section shall prevent the Central Government from notifying additional safeguards on any reporting entity in respect of verification of the identity of its client or beneficial owner. Explanation.-The expressions "Aadhaar number" and "core biometric information" shall have the same meanings as are respectively assigned to them in clauses (a) and (j) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016)." 28. Finance Act No. 22 of 2019 which came into effect from 01 August 2019 introduced Section 12AA in the PMLA which reads as follows:- "12AA. Enhanced due diligence.-(1) Every reporting entity shall, prior to the commencement of each specified transaction,- (a) verify the identity of the clients undertaking such specified transaction by authentication under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Ben .....

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..... egard to the obligations of the reporting entity, under this Chapter. (1A) If at any stage of inquiry or any other proceedings before him, the Director having regard to the nature and complexity of the case, is of the opinion that it is necessary to do so, he may direct the concerned reporting entity to get its records, as may be specified, audited by an accountant from amongst a panel of accountants, maintained by the Central Government for this purpose. (1B) The expenses of, and incidental to, any audit under sub- section (1A) shall be borne by the Central Government. (2) If the Director, in the course of any inquiry, finds that a reporting entity or its designated director on the Board or any of its employees has failed to comply with the obligations under this Chapter, then, without prejudice to any other action that may be taken under any other provisions of this Act, he may- (a) issue a warning in writing; or (b) direct such reporting entity or its designated director on the Board or any of its employees, to comply with specific instructions; or (c) direct such reporting entity or its designated director on the Board or any of its employees, to send reports at suc .....

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..... ro accounts, or (d) any other mode in whatsoever name it is referred to; ii) credits or debits into or from any non-monetary accounts such as d-mat account, security account in any currency maintained by the banking company, financial institution and intermediary, as the case may be; iii) money transfer or remittances in favour of own clients or non-clients from India or abroad and to third party beneficiaries in India or abroad including transactions on its own account in any currency by any of the following:- a) payment orders, or b) cashiers cheques, or c) demand drafts, or d) telegraphic or wire transfers or electronic remittances or transfers, or e) internet transfers, or f) Automated Clearing House remittances, or g) lock box driven transfers or remittances, or h) remittances for credit or loading to electronic cards, or i) any other mode of money transfer by whatsoever- name it is called; iv) loans and advances including credit or loan substitutes, investments and contingent liability by way of- a) subscription to debt instruments such as commercial paper, certificate of deposits, preferential shares, debentures, securitised participation, inter b .....

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..... d address of the Designated Director and the Principal Officer. (2) The Principal Officer shall furnish the information referred to in clauses (A), (B),(BA), (C), (D), (E) and (F) of sub-rule (1) of rule 3 to the Director on the basis of information available with the reporting entity. A copy of such information shall be retained by the Principal Officer for the purposes of official record. (3) Every reporting entity shall evolve an internal mechanism having regard to any guidelines issued by the Director in consultation with, its regulator, for detecting the transactions referred to in clauses (A), (B),(BA), (C), (D), (E) and (F) of sub- rule (1) of rule 3 and for furnishing information about such transactions in such form as may be directed by the Director in consultation with its Regulator. (4) It shall be the duty of every reporting entity, its designated director, officers and employees to observe the procedure and the manner of furnishing information as specified by the Director in consultation with its Regulator." 32. The obligations placed upon a reporting entity to undertake due diligence in respect of clients is reiterated in Rule 9 which reads thus:- "9. Client .....

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..... their client; (1C) Where a client, for the purposes of clause (a) and clause (b), submits a KYC Identifier to a reporting entity, then such reporting entity shall retrieve the KYC records online from the Central KYC Records Registry by using the KYC Identifier and shall not require a client to submit the same KYC records or information or any other additional identification documents or details, unless- (i) there is a change in the information of the client as existing in the records of Central KYC Records Registry; (ii) the current address of the client is required to be verified; (iii) the reporting entity considers it necessary in order to verify the identity or address of the client, or to perform enhanced due diligence or to build an appropriate risk profile of the client. (lD) A reporting entity after obtaining additional or updated information from a client under sub-rule (1C), shall as soon as possible furnish the updated information to the Central KYC Records Registry which shall update the existing KYC records of the client and the Central KYC Records Registry shall thereafter inform electronically all reporting entities who have dealt with the concerned client .....

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..... the purpose of this sub-clause- 1. "Controlling ownership interest" means ownership of or entitlement to more than twenty-five per cent. of shares or capital or profits of the company; 2. "Control" shall include the right to appoint majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements; (b) where the client is a partnership firm, the beneficial owner is the natural persons) who, whether acting alone or together, or through one or more juridical person, has ownership of entitlement to more than fifteen per cent. of capital or profits of the partnership; (c) where the client is an unincorporated association or body of individuals, the beneficial owner is the natural person(s), who, whether acting alone or together, or through one or more juridical person, has ownership of or entitlement to more than fifteen per cent. of the property or capital or profits of such association or body of individuals; (d) where no natural person is identified under (a) or (b) or (c) above, the beneficial owner is the relevant natural person who holds the position .....

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..... esignated officer of the banking company, while opening the small account, certifies under this signature that the person opening the account has affixed his signature or thump print, as the case may be, in his presence: Provided that where the individual is a prisoner in a jail, the signature or thumb print shall be affixed in presence of the officer in-charge of the jail and the said officer shall certify the same under his signature and the account shall remain operational on annual submission of certificate of proof of address issued by the officer in- charge of the jail. (ii) the small account shall be opened only at Core Banking Solution linked banking company branches or in a branch where it is possible to manually monitor and ensure that foreign remittances are not credited to a small account and that the stipulated limits on monthly and annual aggregate of transactions and balance in such accounts are not breached, before a transaction is allowed to take place; (iii) the small account shall remain operational initially for a period of twelve months, and thereafter for a further period of twelve months if the holder of such an account provides evidence before the bank .....

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..... ; and (iii) Permanent Account Number or Form 60 of the trust; and (iv) Such documents as are required for an individual under sub-rule (4) relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf; (9) Where the client is an unincorporated association or a body of individuals, it shall submit to the reporting entity the certified copies of the following documents or the equivalent e-documents thereof, namely:- (i) resolution of the managing body of such association or body of individuals; (ii) Permanent account number or Form 60 of the unincorporated association or a body of individuals; (iii) Power of attorney granted to him to transact on its behalf; [and] (iv) such documents as are required for an individual under sub-rule (4) relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf; (v) such information as may be required by the reporting entity to collectively establish the existence of such association or body of individuals; (10) Where the client is a juridical person, the reporting entity shall verify that any perso .....

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..... the client's identity taking into consideration the type of client, business relationship, nature and value of transactions based on the overall money laundering and terrorist financing risks involved. Explanation.-For the purpose of this clause, simplified measures are not acceptable whenever there is a suspicion of money laundering or terrorist financing, or where specific higher-risk scenarios apply or where the risk identified is not consistent with the national risk assessment. (ia) The guidelines issued under clause(i) shall also include appropriate - (A) exemptions, limitations and conditions and alternate and viable means of identification, to provide account based services to clients who are unable to undergo biometric authentication; (B) relaxation for continued operation of accounts for clients who are unable to provide Permanent Account Number or Form No. 60; and (C) exemption, limitations and conditions and alternate and viable means of identification, to provide account based services of clients who are unable to undergo Aadhaar authentication for receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Deliver .....

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..... document so produced by the client with the original and recording the same on the copy by the authorized officer of the reporting entity as per the provisions contained in the Act. (16) Every reporting entity shall, where its client submits a proof of possession of Aadhaar Number containing Aadhaar Number, ensure that such client redacts of blacks out his Aadhaar number through appropriate means where the authentication of Aadhaar number is not required under sub-rule (15). (17) (i) A client already having an account based relationship with a reporting entity, shall submit his Permanent Account Number of equivalent e-document thereof or Form No. 60, on such date as may be notified by the Central Government, failing which the account shall temporarily cease to be operational till the time the Permanent Account Number or Form No. 60 is submitted by the client: Provided that before temporarily ceasing operations for an account, the reporting entity shall give the client an accessible notice and a reasonable opportunity to be heard. Explanation.-For the purpose of this clause, "temporary ceasing of operations" in relation to an account means the temporary suspension of all tra .....

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..... er came to be passed, undisputedly, it has discontinued its PA business with effect from 01 April 2021 and the challenge in the petition thus stands restricted to the question of whether an OPGSP could be said to be a Reporting Agency under the PMLA. The principal submission addressed was that PayPal while operating as an OPGSP cannot be said to be a reporting entity as defined under the Act. 34. For the purposes of lending clarity on the nature of the functions performed by PayPal while working as a payment facilitator, learned senior counsels placed for the consideration of the Court a diagrammatical presentation of its business operations which is extracted hereinbelow :- 35. It becomes pertinent to note that PayPal categorically asserts that it only onboards the Indian exporter and does not enrol the overseas remitter involved in the export transaction. It was also firmly asserted that PayPal only provides services to various Indian exporters by offering them a convenient technological interface for the receipt of funds from overseas buyers. 36. Mr. Sibal and Mr. Poovayya submitted that PayPal provides a technology platform which is utilised by lakhs of small Indian exporter .....

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..... global aggregator's hands to the AD Banks NOSTRO collection account where it is held in US dollars. The money so received is then transferred to the AD Banks Export Collection Account where funds are then retained in Indian rupees. 40. Learned senior counsels pointed out that the AD Banks both overseas as well as in India, undisputedly, are reporting entities under the PMLA. It was also submitted that it is the AD Banks which undertake the operation of receiving payments, clearing funds and performing settlement activities. According to PayPal, since it merely provides a link to the Indian exporter which is then transmitted to the foreign or overseas buyer and results in the interface created by PayPal being utilised for effective and convenient transfer of funds, it cannot possibly be said that it would fall within the definition of a reporting entity. 41. It was submitted by PayPal that this position was duly recognised by RBI when it clearly averred in the affidavit filed in Abhijit Mishra vs. Reserve Bank of India W.P.(C) NO. 7007 OF 2019 that PayPal cannot be recognised to be a reporting entity as defined under the PSS Act. Reliance was also placed on the disclosures made i .....

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..... neither enabling credit or debit card operations, smart card operations or money transfer operations. It was submitted that it is not even the case of the respondents that PayPal is engaged in debit card, smart card or credit card operations. It was further argued that the functions performed by PayPal would also not extend to money transfer operations since it at no stage of the entire transaction handles funds which move between the Indian exporter and the overseas buyer. In view of the aforesaid, it was argued that since the technological interface provided by PayPal would not fall within the ambit of Section 2(1)(rb), it cannot be said to be a payment system operator. 45. It was then submitted that the task of regulation and supervision of payment systems is entrusted with the RBI in terms of the PSS Act. PayPal urged that RBI has admittedly not directed it to seek any authorisation under the aforesaid enactment even though it has been functioning as an OPGSP since 2017. Reliance was also placed on a response tendered by RBI under the Right to Information Act, 2005 [RTI Act] and which stands placed on the record as Annexure-19 and in terms of which RBI acknowledges that it had .....

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..... bligations. 70. It is pertinent to note, that because PGs do not handle funds, and are only concerned with providing technology infrastructure to route and/or facilitate the processing of online payment transactions, the impugned clauses of the 2020 Guidelines i.e. Clauses 3, 4 and 8 are not made applicable to them. The scope of the work function of a PG in the RBI's discussion paper reads thus: "A technology infrastructure provider to route and facilitate processing of an online payment transaction, without any involvement in the actual handling of funds...." 71. Therefore, in our view, the answer to the poser, as to whether PAs fall within the ambit of the definition of payment system can only be in the affirmative, for the reasons given above. That being said, as alluded to above, there is, perhaps, merit in the responses received by RBI to its discussion paper, that separate legislation may have to be enacted for payment services. This aspect, however, falls in the domain of the legislators. The executive could consider this suggestion, and initiate necessary steps in that behalf." 48. Mr. Poovayya submitted that Lotus Pay Solutions in clear and unequivocal terms rec .....

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..... at as would be evident from Clauses 2.1 and 2.2, it is manifest that due diligence obligations are placed on the AD Banks as opposed to an OPGSP. Taking the Court through paragraph 4 of the OPGSP guidelines and which deals with the subject of export transactions, it was again submitted that all obligations including those concerning the opening of a NOSTRO collection account as well as maintenance of an Export Collection Account are those which are placed on AD Banks as opposed to an OPGSP. 53. Mr. Poovayya further argued that undisputedly PMLA imposes numerous penal sanctions. It was submitted that it is a settled principle that statutes with penal implications ought to be interpreted strictly and its provisions be not accorded an expansive construction. Reliance in support of the aforesaid was placed on the following enunciation on the legal position in Glaxo Laboratories (I) Ltd. vs. Presiding Officer (1984) 1 SCC 1:- "22. Having examined the matter both on principle and precedent, it would clearly emerge that clause 10 of Standing Order 22 which collects various heads of misconduct must be strictly construed being a penal provision in the sense that on the proof of a miscon .....

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..... ion is likely to assist the achievement of the said policy, then the courts would prefer to adopt the latter construction. It is only in such cases that it becomes relevant to consider the mischief and defect which the Act purports to remedy and correct." 56. Mr. Poovayya further submitted that the impugned order suffers from a more fundamental fallacy since the same proceeds on the precept of a "deemed" payment system operator. It was contended that in the absence of the statute deploying a deemed fiction, the respondents could not have introduced the concept of a deemed payment system operator. According to PayPal while holding it to be a deemed payment system operator, FIU-IND has clearly travelled far beyond the statute itself quite apart from having exceeded the jurisdiction and authority conferred upon it. It was further urged that while the scourge of terror financing is liable to be prevented and effective safeguards need to be adopted to fight that malaise, that alone cannot constitute a valid ground for PayPal being held to be a reporting agency under the statute. 57. Mr. Poovayya submitted that while, undisputedly, FIU-IND is bound by the international obligations whic .....

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..... reference is an important indicator of the distinct regimes which stand created under the two statutes. Mr. Hossain submitted that regard must also be had to the fact that PMLA is a statute with a dual character in the sense of it containing penal as well as preventive and regulatory provisions. 60. It was submitted that merely because PayPal is required to be registered as a reporting entity under the PMLA, the same cannot possibly be held to be an obligation which is penal in character. The fact that PMLA comprises of both penal as well as regulatory averments, Mr. Hossain pointed out was one which stands duly recognised by the Supreme Court in Vijay Madan Lal Choudhary vs. Union of India & Ors [2022 SCC OnLine SC 929] itself. 61. In order to impress upon the Court, the extent of operations that occur on the interface created by PayPal, Mr. Hossain stated that the nodal account maintained by PayPal in India with Citibank witnessed export transactions of a combined value of more than Rs. 12,000 crores in 2021. The details of transactions were also set out in paragraph 8 of the written submissions filed on behalf of FIU-IND in these proceedings and the table so presented is extr .....

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..... rue Copy of the Email dated 20.01.2021 received by the FIU- IND from Citibank is attached herewith and marked as Annexure R-2]. 99. This conduct of the petitioner itself shows that its conduct is suspicious and that the petitioner is creating legal fictions to avoid complying to the laws of India deliberately. The continued hindrance to furnish information of the parties to the transaction is an obstacle created by the petitioner in the legitimate functioning of FIU-India. Further, the transactions in question here are not routine transactions; these are cross border wire transfers of more than Rs. Five lakh Indian rupees which considering the risk that such funds pose to the country's Anti-Money Laundering and Countering of Terrorist Financing Framework, the government in its wisdom deemed it fit to be reported under the provisions of PMLA and the Rules thereunder. The amount of hindrance created by the petitioner in the legitimate functioning of FIU-India can be gauged from the fact that there were more than 22000 cross border wire transactions involving fund transfer of the tune of Rs. 2500 crores that were reported by just one bank i.e. Citibank for transactions carried o .....

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..... ighted in our meeting held on 25 February 2020. Following the receipt of FIU-IND's directions on 5 January 2021, the Bank enforced the need to provide actual remitter details with PayPal & Payoneer within the FIU-IND defined timelines, through senior management engagement. Consequently, PayPal and Payoneer furnished the details of actual remitters for the transactions reported for the period April 2017 to July 2020 to the Bank in tranches between 8 to 14 January 2021. The Bank has put in a process to obtain the end remitter data for reportable transactions from the two OPGSPs- Payoneer and PayPal incrementally and effective July 2020 (for Payoneer) & September 2020 (for PayPal), the Bank has started including the same in the CBWTR reports to the FIU. Please do let us know if there any incremental details that may be needed from our end. Thanks & Regards, Ajay Kataria Citi AML | India" 64. In paragraph 100, FIU-IND then refers to the communications which were exchanged between it and SBI Card and Payment Services Limited. The exchange of these communications is detailed in paragraph 100 of the counter affidavit which reads as follows:- "100. Similarly, it is perti .....

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..... ndia is obliged to discharge by virtue of being a member of FATF and comply with the global efforts to fight the malaise of money-laundering. 67. It was submitted that the fight against money-laundering in order to succeed must keep in step with the digital transformation which is reshaping the economies and societies across the globe. It was submitted that the anti-money-laundering and counter terrorist financing modes adopted by nations across the globe rest upon the exchange of financial intelligence. It was submitted that FIU-IND is a member of the Egmont Group of Financial Intelligence Units, a global organisation consisting of 167 global FIUs which came to be constituted to enable FIUs established in various jurisdictions to sit on a common platform and thus enabling exchange of expertise and financial intelligence needed to combat money-laundering, terror financing and associated predicated crimes. FIU-IND also placed on the record the details evidencing a regular exchange of information and intelligence with partnering FIUs situate overseas. Those details are extracted hereinbelow: - Year No. of request received from foreign FIUs No. of request sent to foreign FIUs No. .....

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..... itted that if Section 2(1)(rb) were to be interpreted and accepted on lines advocated by the petitioner, it would clearly hinder the anti money-laundering and counterterrorist financing measures which India seeks to adopt. Mr. Hossain also in aid of his submissions invited the attention of the Court to the judgement of the Supreme Court in Baldeo Krishna Sahi v. Shipping Corp of India Ltd (1987) 4 SCC 361, 366 which had held that a statute must not be interpreted in a manner which would either promote a mischief or create a lacuna. 72. Turning then to the provisions of the relevant provisions of PMLA itself, Mr. Hossain argued that Section 2(1)(rb) significantly uses the expression "enables" while dealing with the subject of payment which is to be effected between a payer and a beneficiary. Of equal significance, Mr. Hossain would urge is the insertion of the word "or" between payment and settlement service. It was further underlined that Section 2(1)(rb) thus clearly has been constructed in order to include a wide category of entities which facilitate payments. 73. According to Mr. Hossain, PayPal principally discharges a role of facilitating payment transactions. Mr. Hossain su .....

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..... in Section 2(1)(rb). Reliance was placed on the decision of the Supreme Court in Rasila S. Mehta & Ors. vs. Custodian, Nariman Bhavan (2011) 6 SCC 220 where the meaning to be accorded to the expression "involving" arose. Mr. Hossain referred to the following passages from that decision:- "75. The object of the Act is not merely to bring the offender to book but also to recover what are ultimately public funds. Even if there is a nexus between a third party, an offender and/or property the third party can also be notified. The word "involved" in Section 3(2) of the Special Court Act has to be interpreted in such a manner so as to achieve the purpose of the Act. This Court in Ashwin S. Mehta v. Custodian [(2006) 2 SCC 385], has observed as under : (SCC p. 400, para 34) "34. Although, we do not intend to enter into the correctness or otherwise of the said contention of the appellants at this stage, however, there cannot be any doubt whatsoever that they being notified persons, all their properties would be deemed to be automatically attached as a consequence thereto. For the said purpose, it is not necessary that they should be accused of commission of an offence as such." (empha .....

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..... ould be very reluctant to hold that Parliament has achieved nothing by the language it used when it is tolerably plain what it seeks to achieve." G. RBI'S POSITION 76. Appearing for RBI Mr. Tripathi, learned senior counsel at the outset, submitted that the affidavit tendered on its behalf in Abhijit Mishra cannot be viewed as being dispositive of the question which stands raised. According to Mr. Tripathi, the said affidavit is liable to be read and appreciated in the context of the statute which formed the subject matter of those proceedings, namely, the PSS Act. Mr. Tripathi drew the attention of the Court to the Preamble of the PSS Act and submitted that a reading thereof would establish that the said statute is principally concerned with the regulation and supervision of payment systems involved in the actual transmission of funds between the payer and a beneficiary. According to Mr. Tripathi, the object of the PMLA, on the other hand, is clearly distinct and different. Mr. Tripathi submitted that PMLA is fundamentally concerned with prevention, regulation and carrying forward the fight against the crime of money-laundering. 77. It was submitted that PMLA came to be enacted .....

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..... word while considering a statute is to gather the intention of the legislature. The Court can make a purposeful interpretation so as to effectuate the intention of the legislature and not a purposeless one in order to defeat the intention of the legislature wholly or in part. 24. At the time of debate in Rajya Sabha, while introducing Amendment to the Finance Act on 17 December, 2012, the then Finance Minister has categorically made the aforestated statements as reproduced in para No. 5 page No. 8 above. From the statement of the Finance Minister, it can be clearly discerned that, or lodgement for an offence under the PMLA, there must be a Predicate Offence and it is dealing with the proceeds of a crime. The information published by Respondent No. 1-ED pertaining to FAQs, for an answer to question No. 13 therein, it has been specifically stated that, every Scheduled Offence is a Predicate Offence. The Scheduled Offence is called Predicate Offence and the occurrence of the same is prerequisite for initiating investigation into the offence of money-laundering. 25. The Hon'ble Supreme Court, in the case of P. Chidambaram (Supra) while considering various provisions of PMLA and .....

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..... necessity is registration of a Predicate/Scheduled Offence as prescribed in various Paragraphs of the Schedule appended to the Act and nothing more than it. In other words, for initiating or setting the criminal law in motion under the PMLA, it is only that requirement of having a predicate/Scheduled crime registered prior to it. Once an offence under the PMLA is registered on the basis of a Scheduled Offence, then it stands on its own and it thereafter does not require support of Predicate/Scheduled Offence. It further does not depend upon the ultimate result of the Predicate/Scheduled Offence. Even if the Predicate/Scheduled Offence is compromised, compounded, quashed or the accused therein is/are acquitted, the investigation of ED under PMLA does not get affected, wiped away or ceased to continue. It may continue till the ED concludes investigation and either files complaint or closure report before the Court of competent jurisdiction. 29. The language of Sections 3 and 4 of PMLA, makes it absolutely clear that, the investigation of an offence under Section 3, which is punishable under Section 4, is not dependent upon the ultimate result of the Predicate/Scheduled Offence. In .....

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..... by Lord Atkinson in Keates v. Lewis Merthyr Consolidated Collieries, "In the construction of a statute it is, of course, at all times and under all circumstances permissible to have regard to the state of things existing at the time the statute was passed, and to the evils which, as appears from it provisions, it was designed to remedy". If the words are capable of one meaning alone, then it must be adopted, but if they are susceptible of wider import, we have to pay regard to what the statute or the particular piece of legislation had in view. Though the definition may be more or less the same in two different statutes, still the objects to be achieved not only as set out in the preamble but also as gatherable from the antecedent history of the legislation may be widely different. The same words may mean one thing in one context and another in a different context. his is the reason why decisions on the meaning of particular words or collection of words found in other statutes are scarcely of much value when we have to deal with a specific statute of our own; they may be helpful, but cannot be taken as guides or precedents." 81. Mr. Tripathi in support of the aforesaid content .....

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..... er & Ross [AIR 1960 SC 971 : (1960) 3 SCR 857] )" 83. To buttress the aforesaid proposition, Mr. Tripathi, additionally referred to the following passage from the decision of the Supreme Court in Jagir Singh vs. State of Bihar (1976) 2 SCC 942:- "20. The general rule of construction is not only to look at the words but to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning according to what would appear to be the meaning intended to be conveyed by the use of the words under the circumstances. Sometimes definition clauses create qualification by expressions like "unless the context otherwise requires"; or "unless the contrary intention appears"; or "if not inconsistent with the context or subject-matter". "Parliament would legislate to little purpose," said Lord Macnaghten in Netherseal Co. v. Bourne [(1889) LR 14 AC 228 : 59 LJ QB 66 : 61 LT 125] , "if the objects of its care might supplement or undo the work of legislation by making a definition clause of their own. People cannot escape from the obligation of a statute by putting a private interpretation on its language." The courts will always examine the real nat .....

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..... iii) public interest. 160. As we have pointed out elsewhere, the impugned Circular is primarily addressed to banks who are "system participants" within the meaning of Section 2(1)(p). The banks certainly have a system of payment to be effected between a payer and a beneficiary, falling thereby within the meaning of the expression payment system. 161. It may also be relevant to take note of the definition of the expressions "payment instruction" and "payment obligation" appearing in clauses (g) and (h) of sub-section (1) of Section 2 which read as follows: "2. (1)(g) "payment instruction" means any instrument, authorisation or order in any form, including electronic means, to effect a payment- (i) by a person to a system participant; or (ii) by a system participant to another system participant; (h) "payment obligation" means an indebtedness that is owned by one system participant to another system participant as a result of clearing or settlement of one or more payment instructions relating to funds, securities or foreign exchange or derivatives or other transactions;" 162. Therefore, in the overall scheme of the Payment and Settlement Systems Act, 2007, it is impossi .....

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..... P.(C) 138/2021 between PayPal Payments Private Limited versus Financial Intelligence Unit-India. (i) The Reserve Bank of India (RBI) and Ministry of Finance to take a clear stand after the due consultation as to whether they consider platforms such as that of the petitioners (PayPal) as being the purview of PML Act. (ii) Accordingly, Ministry of Finance is directed to constitute a Committee with a nominee of RBI and the Ministry of Finance to clarify their position as to whether companies like the petitioners who claim to be facilitators of monetary transactions, both in foreign exchange and in India rupees, ought to be categorized as "Payment System operators" and hence "reporting entities" under the PML Act." 87. Mr. Tripathi also drew the attention of the Court to the ultimate conclusions which came to be recorded by that Committee when it opined as under: - "Conclusion 11. Entities like PayPal are very much covered under the definition of Payment System Operator under PMLA. The definition of Payment System Operator in PMLA is a standalone definition and not linked with PSS Act. Non-requirement of registration of PayPal and similar entities with RBI under PSS Act does n .....

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..... plaining the business model of PayPal and why according to FIU-IND, it was liable to be viewed as a reporting entity under the PMLA. Pursuant to the liberty so granted, FIU-IND in terms of its Note of 16 January 2023 highlighted the following issues:- "Business Model of Petitioner 1. The Petitioner is a payment facilitation platform which onboards merchants / sellers and enables such individuals / entities to collect payments. In doing so, the Petitioner essentially must collect details of the onboarded party - including their identity as well as details such as the account in which proceeds are to be ultimately credited. Further, where a third party customer wishes to pay the onboarded party, Petitioner would facilitate the same transaction by collecting money on behalf of the onboarded party and crediting the same as instructed. 2. In this manner, while nominally being an intermediary, the Petitioner does more. It collects monies on behalf of various persons and credits them as instructed. Even though such transactions may take place through banking channels, the banks only have visibility over the transaction end points and values. Any further information collected by the .....

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..... ry entity. 6. In view of its requirement to conduct due diligence and onboard of transacting parties, the Petitioner would reasonably be expected to collect at least the following data points at the time of onboarding as well as on an ongoing basis. As relevant to the present context where the Petitioner is facilitating exports from India, such data points would be relevant in connection with the Indian exporter as well as the foreign remitter (to the extent relevant / applicable). Data Point Value Entity / Person Name Required to complete transactions; for onboarding diligence; and screening against blacklists. Entity / Person Address Required to complete transactions; onboarding diligence; and screening against blacklists. Entity / Person Banking information including account, bank, etc. Required to complete transactions; for onboarding diligence; and screening against blacklists. Entity / Person line of business Required to complete transactions; onboarding diligence; and screening against blacklists. Entity / Person device information Required to complete transactions; onboarding diligence; and detection of fraudulent activity. Entity / Person IP address and .....

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..... e conducted over such parties. o The Petitioner collects a wide variety of data points relating to foreign parties it onboards which far exceeds the data points shared with its bank partners; o The Petitioner collects a wide variety of data points relating to foreign parties it onboards which far exceeds what is to be included in the CBWTR format which is merely one type of threshold report to be filed by the RE. o The Petitioner is aware of the criticality of STR reporting based on its compliance with similar commitments abroad. o The Petitioner's role cannot be equated with TPAP or other stakeholders since the Petitioner plays an active role in onboarding transacting parties, is under an obligation to conduct due diligence, and handles funds through a collection account maintained in its partner bank." 91. The said Note while expanding upon the role discharged by FIU-IND asserts as under: - "Role of FIU-IND with respect to business model: 12. In order to conduct such analysis, FIU-IND leverages every single data point available from a report filed by a 'reporting entity' - this includes transacting parties, values, KYC information of parties, location, information as .....

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..... led by 'reporting entities'. 16. In this regard, of particular concern are 'suspicious transaction reports' which are the most valuable type of report received by FIU-IND. Such reports are based on subjective assessments of 'reporting entities' that certain transactions may directly relate to the proceeds of crime or some other illicit financial activity. By collecting STRs, FIU-IND pushes the frontiers of intelligence collection and early warning and creates a framework whereby every stakeholder in the financial ecosystem is incentivised to undertake actions to detect and report potential criminality. Given the scale of criminal misuse of the financial system, such a framework - leveraging maximum number of stakeholders - is crucial to the early detection and deterrence of illicit financial flows. It is essential that every single stakeholder plays its part to protect the public as well as the system from illicit financial flows. The Petitioner's case is silent on STR reporting. 17. As a responsible stakeholder in the financial ecosystem, the Petitioner itself must also use all available data points and its resources to detect and report STRs. These are subjective and based on .....

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..... r which Petitioner appears to be registered (based on material available in public domain) Jurisdiction Provision/Definition Notes United States where PayPal is registered under the category of 'money service business' and specifically a 'money transmitter' 31CFR § 1010.100(ff) (ff) Money services business. A person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, inone or more of the capacities listed in paragraphs (ff)(1) through (ff)(7) of thissection. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States. (1) Dealer in foreign exchange. A person that accepts the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more countries in exchange for the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more other countries in an amount greater than $1,000 for any other person on any day in one or more transactions, whether or not for same-day delivery. (2) Check casher - (i) In .....

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..... ting the terms and conditions of the prepaid program and determining that the terms have not been exceeded; (C) Determining the other businesses that will participate in the prepaid program, which may include the issuing bank, the payment processor, or the distributor; (D) Controlling or directing the appropriate party to initiate, freeze, or terminate prepaid access; and (E) Engaging in activity that demonstrates oversight and control of the prepaid program. (iii) Prepaid program. A prepaid program is an arrangement under which one or more persons acting together provide(s) prepaid access. However, an arrangement is not a prepaid program if; (A) It provides closed loop prepaid access to funds not to exceed $2,000 maximum value that can be associated with a prepaid access device or vehicle on any day; (B) It provides prepaid access solely to funds provided by a Federal, State, local, Territory and Insular Possession, or Tribal government agency; (C) It provides prepaid access solely to funds from pre-tax flexible spending arrangements for health care and dependent care expenses, or from Health Reimbursement Arrangements (as defined in 26 U.S.C. 105(b)and 125) for healt .....

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..... per, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any point during the transportation; (E) Provides prepaid access; (F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds. (6) U.S. Postal Service. The United States Postal Service, except with respect to the sale of postage or philatelic products. (7) Seller of prepaid access. Any person that receives funds or the value of funds in exchange for an initial loading or subsequent loading of prepaid access if that person. (i) Sells prepaid access offered under a prepaid program that can be used before verification of customer identification under §1022.210(d)(1) (iv) ; or (ii) Sells prepaid access (inclu .....

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..... o the Australian Consumer and Competition Commission (2018)3 "8.3 We are a reporting entity to AUSTRAC under the Anti-Money Laundering and Counter-Terrorism Financing Act." 93. Controverting the aforesaid submissions, PayPal argued that its compliance with AML measures mandated across different jurisdictions must necessarily be evaluated bearing in mind the nature of activities that it undertakes in those jurisdictions. PayPal contended that insofar as India is concerned, it only operates as an OPGSP and thus merely because it has chosen to comply with certain statutory obligations placed in terms of different statutes which prevail in other jurisdictions, the same cannot possibly constitute justification for it being held to be a payment system operator. 94. While responding to the note of the FIU-IND dated 16 January 2023, it has asserted as under: - "i. It may be noted that the Respondent No.l/FIU vide its Note handed over on 16.01.2023 has produced a chart at the end of the Note, indicating that the PayPal Entities in United States, Luxemburg and Australia are complying with certain reporting obligations in the said jurisdiction and thus, the Petitioner ought to be consider .....

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..... providing the said bouquet of services in India and as such only providing online payment gateway for only export related transactions. Thus, the Petitioner does not merit treatment of a 'Reporting Entity' in India. 7. From the above description of services offered by the PayPal Entities operating in other jurisdictions, it is evident that the reporting obligations arise on account of the financial services offered by such entities in the said jurisdictions, which cannot equated to the service of 'Online payment gateway service provided for export related transactions' in India. In other words, the PayPal Entities operating in other jurisdictions do not offer services identical to the Petitioner in those jurisdictions. Accordingly, the reporting obligations applicable to the PayPal Entities in each jurisdiction differs from one another, based or) the business/services offered by such entity." 95. Upon the matter being closed for judgement, PayPal placed an Additional Note on the record seeking to explain the reporting obligations discharged by it in different jurisdictions. Apart from placing on the record the statutes which are prevalent in United States, Brazi .....

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..... siness which it transacts and the services that are offered. It was submitted that the aforesaid, in any case, would not result in PayPal being treated as a reporting entity under the PMLA. It is these submissions which fall for consideration. I. MONEY LAUNDERING - GLOBAL EXPERIENCES 98. It must at the outset be acknowledged that the menace of money laundering is not an "India centric" issue. It is a transnational phenomenon and an international challenge. In fact, the PMLA is an embodiment of India's resolve to join the concerted global effort in the fight against money laundering and terror financing. This is also evident from the fact that the legislation in question itself owes its genesis to the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, the recommendations of the Financial Action Task Force established at that summit and which was followed by the adoption of the United Nations General Assembly Resolution of 23 February 1990. As PMLA itself acknowledges, it came to be enacted in furtherance of India's international obligations to implement various United Nations Resolutions in terms of which member States were called upon .....

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..... he FATF recommendations through assessments performed annually by the individual members and through mutual evaluations which provides an in-depth description and analysis of a country's system for preventing criminal abuse of the financial system, as well as, by focused recommendations to the country to further strengthen its system. 97. It is submitted that upon evaluation, a country will be placed immediately into enhanced follow-up if it does not comply with the FATF technical and "big six" recommendations or has a low effectiveness outcome-181. [EndNote 181 : 181 (i) It has 8 or more Non-compliant NC/Partially Compliant (PC) ratings for technical compliance; (ii) It is rated NC/PC on any one or more of R.3, 5, 10, 11 and 20 "big six" recommendations; or (iii) It has a low level of effectiveness for 4 or more of the 11 effectiveness outcomes.] 98. It is further submitted that jurisdictions under monitoring then, based on their commitments and compliances, are put in two types of list viz., grey list and black list, which serve as a signal to the global financial and banking system about heightened risks in transactions with the country in question which not only severel .....

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..... irective (2001) widened the number of institutions that fell within the scope of reporting obligations and also expanded the range of predicate offences for the purpose of money-laundering. EU Third Directive (2005) was directed to bring the EU legislation into line with the revisions to the FATF Recommendations and further expanded the range of institutions within its scope to include life insurance intermediaries and widened the definition of high value dealers to capture those who accept cash payments of EUR15,000 or more. A definition of 'serious crimes' was included that constituted 'predicate offences', including all offences punishable by a maximum sentence of one year or more, or a minimum sentence of six months or more (in jurisdictions where minimum sentences are applied), as well as other specified offences including serious fraud and corruption. It is submitted that the EU Fourth Directive on Money Laundering (2015) aimed to improve the regulatory European framework after taking into account new FATF recommendations published in 2012. 103. To emphasize on the role of international cooperation to combat money-laundering, it has been stated that the Financial Intelligen .....

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..... dicated from the stand point of the country's obligations and evolving responsibilities internationally. 257. Thus, it is clear from a bare reading of two very initial international Conventions attempting to establish a world order to curb money-laundering, gave a very wide interpretation to the concept of money-laundering. There has been a consensus that acquisition, possession, use, concealing or disguising the illicit origin of illegitimately obtained money to evade legal consequences would be money-laundering. Further, concealing and disguising too were clearly a part of money-laundering and as such there was no bar or understating that pointed to the fact that there was a need to project the monies as untainted. This was obviously subject to the fundamental principles of the domestic law of the countries. However, the growth of the jurisprudence in this law did not stop or end there. As we progressed into a world equipped with the internet and into a digital age, criminals found new ways to launder and the law found new ways to tackle them. In the meanwhile, the FATF was established and it started working towards a goal of preventing money-laundering. It has since its in .....

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..... d the consequential sharing of information with other national intelligence and law enforcement agencies. FIU-IND represents the coordinated mechanism adopted by nations aimed at strengthening the collection and sharing of financial intelligence by the creation of a national, regional and a global network to detect illicit financial flows and combat money laundering. 101. While the ubiquitous imprint of the internet has enabled nations and people to transcend borders and forms the backbone of the "wired world", it has also given rise to its fair share of attendant and ever evolving challenges. This is duly acknowledged in FATF's report on Emerging Terrorists Financing Risks published on 21 October 2015. The Court deems it apposite to extract the following passages from that report: - "EXECUTIVE SUMMARY While the number and type of terrorist groups and related threats have changed over time, the basic need for terrorists to raise, move and use funds has remained the same. However, as the size, scope and structure of terrorist organisations have evolved, so too have their methods to raise and manage funds. The main objective of this report is to analyse recently identified terro .....

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..... rticularly self-funding, to raise the funds they require to travel to the conflict areas. However, the novel aspect for jurisdictions is the challenge in identifying these individuals because of the relatively low amounts of funding they require and the speed with which they can acquire it. The report reveals that financial intelligence can assist in identifying FTFs in a number of ways. Close cooperation between authorities domestically and internationally and close partnerships between authorities and the private sector can assist to better identify FTFs and their facilitation networks. The report also shows that further work is required to shed light on blind spots in information about FTFs, including returnees. The role of social media in breeding violent extremism has been well reported but less is known about how it used to raise funds for terrorists and terrorist groups. The report finds that there are significant vulnerabilities associated with social media, including anonymity, access to a wider range and number of potential sponsors or sympathisers and the relative ease with which it integrates electronic payment mechanisms. It is also apparent that donors are often una .....

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..... tiatives to develop risk indicators which will be helpful to both private and public sectors. This report was developed in a short timeframe to provide a snapshot of the TF risks we see today. It is not a comprehensive assessment of those risks and the issues discussed in the report should be subject to further study. This report serves to raise awareness among FATF members and the private sector on the underlying issues that need to be addressed by policy and operational responses. This research is intended to complement FATF's work to enhance countries' implementation of the FATF standards on TF." 102. FATF also underlines the complex challenges which have arisen on account of the adoption of internet-based payment services across the globe. While dealing with this aspect it has observed as under: - "INTERNET-BASED PAYMENT SERVICES Internet-based payment services provide mechanisms for customers to access, via the Internet, pre-funded accounts which can be used to transfer the electronic money or value held in those accounts to other individuals or businesses which also hold accounts with the same provider. Pre-funded accounts that consumers use for online auction payments .....

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..... in Amman, Jordan but when Yahoo! acquired Maktoob in November 2009, the ownership of CashU was transferred to Jabbar Internet Group. Today, CashU has established offices in Dubai, Amman and Cyprus. CashU uses courier companies in the UAE to collect cash from customers. CashU is mainly used for paying for online games, VoIP, matrimonial, IT services, FX trading and download of music and software. They have a strict policy to not accept merchants providing gambling and sexual content. CashU also provides a parental control feature allowing parents to limit and control where their kids spend money online. Source: United States CHALLENGES ASSOCIATED WITH NEW PAYMENT PRODUCTS AND SERVICES The rapid development, increased functionality, and growing use of new payment products and services (NPPS) globally have created AML challenges for countries and private sector. Notwithstanding the known vulnerabilities, the actual prevalence and level of exploitation of these technologies by terrorist groups and their supporters is not clear at this time and remains an ongoing information gap to be explored." 103. It becomes relevant to note that while dealing with this subject, FATF has speci .....

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..... rposes and potential means to counter such use. The objective of the Working Group initiative was to provide Member States with an overview of the current nature of the challenge and to propose policy guidelines, projects and practical guidance regarding legal, technical and counter-narrative aspects of the challenge. Working Group conferences were held in Berlin in January 2010, Seattle (United States of America) in February 2010 and Riyadh in January 2011. In furtherance of its mandate "to develop specialized legal knowledge in the area of counter-terrorism ... and to provide assistance to requesting Member States with regard to criminal justice responses to terrorism, including ... the use of the Internet for terrorist purposes," the Terrorism Prevention Branch of UNODC, in collaboration with the Organized Crime and Illicit Trafficking Branch of UNODC and with the support of the Government of the United Kingdom of Great Britain and Northern Ireland, undertook to contribute to the Working Group project through the development of the current technical assistance tool on the use of the Internet for terrorist purposes. The current UNODC publication builds upon the conclusions of t .....

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..... by several means, including transfer through e-gold online payment accounts, which were used to route the funds through several countries before they reached their intended destination. The laundered money was used both to fund the registration by Tsouli of 180 websites hosting Al-Qaida propaganda videos and to provide equipment for terrorist activities in several countries. Approximately 1,400 credit cards were used to generate approximately GBP1.6 million of illicit funds to finance terrorist activity. 16. Financial support provided to seemingly legitimate organizations, such as charities, may also be diverted for illicit purposes. Some terrorist organizations have been known to establish shell corporations, disguised as philanthropic undertakings, to solicit online donations. These organizations may claim to support humanitarian goals while in fact donations are used to fund acts of terrorism. Examples of overtly charitable organizations used for terrorist ends include the innocuously named Benevolence International Foundation, Global Relief Foundation and the Holy Land Foundation for Relief and Development, all of which used fraudulent means to finance terrorist organizations .....

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..... n, PayPal had strongly relied upon the affidavit filed by RBI in the Abhijit Mishra proceedings in support of its submission that it is not legally permissible for the respondents to assert that it administers a payment system. It had in this connection also placed reliance upon the similarity with which the PSS Act and PMLA defined a payment system. In order to evaluate this contention, it would, at the outset, be necessary to advert to the scheme and the relevant provisions of the PSS Act. 108. The PSS Act, as would be evident from its Preamble, is an Act which is concerned with the regulation and supervision of payment systems in India. The expression "electronic fund transfer" is defined by Section 2(c) to mean any transfer of funds through electronic means through the modes specified therein. It includes transfer, deposit or withdrawal of funds via the internet. The expression gross settlement system as per the definition extracted hereinabove is defined to mean a payment system on the basis of which settlement is accomplished on the basis of separate or individual transactions. The word netting is then specified to mean the amount of money or securities due, payable or deliv .....

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..... appears to regulate PAs who receive, retain or hold funds of a customer before its onward transmission to a beneficiary. This clearly flows from the definition of a "payment system" which describes the same to be one which enables payment to be effected by a payer for its onward transmission to a beneficiary and involves clearing, payment, settlement services. A payment system in terms of that definition may be one which provides either one of those services or performs all of those functions compendiously. 110. Of equal significance is Section 2(1)(n) which defines the expression "settlement" to mean settlement of payment instructions. The reach of the PSS Act can also be gathered from Sections 10 and 23 of the said enactment and which, while empowering RBI to determine standards, enables it to prescribe the format of payment instructions, timing to be maintained by payment systems as well as the manner of transfer of funds within the payment system itself. The settlement and netting procedure which is governed by Section 23 of the PSS Act relates to the distribution of funds between system participants and the payment system itself. All of the aforesaid provisions and the schem .....

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..... tted credits/debits in these accounts are set out below: i. Credits a) Payments from various persons towards purchase of goods/services. b) Transfers from other banks as per pre-determined agreement into the account, if this account is the nodal bank account for the intermediary. c) Transfers representing refunds for failed/disputed transactions. ii. Debits a) Payments to various merchants/service providers. b) Transfers to other banks as per pre-determined agreement into the account, if that account is the nodal bank account for the intermediary. c) Transfers representing refunds for failed/disputed transactions. d) Commissions to the intermediaries. These amounts shall be at predetermined rates/frequency. Note: No payment other than the commissions at the pre- determined rates/frequency shall be payable to the intermediaries. Such transfers shall only be effected to a bank account intimated to the bank by the intermediary during the agreement." 113. Para 4 prescribes the system of settlement which is to be adhered to. It reads as follows: - "4. Settlement 4.1 The final settlements of funds to the merchants are presently guided by business practices follow .....

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..... ng of this facility are required to open notional accounts with the OPGSP, it shall be ensured that no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD Category-I bank. (iii) The balances held in the NOSTRO collection account shall be repatriated to the Export Collection account in India and then credited to the respective exporter's account with a bank in India immediately on receipt of the confirmation from the importer and, in no case, later than seven days from the date of credit to the NOSTRO collection account. (iv) The permitted debits to the OPGSP Export Collection account maintained in India will be: a) payment to the respective Indian exporters' accounts; b) payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP; and c) charge back to the overseas importer where the Indian exporter has failed in discharging his obligations under the sale contract. (v) The only credit permitted in the same OPGSP Export Collection account will be repatriation from the NOSTRO collection accounts electronically." .....

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..... PA is responsible for delivery of goods / services the payment to the merchant shall be not later than on Ts + 1 basis. 8.4.2. Where merchant is responsible for delivery, the payment to the merchant shall be no tlater than on Td + 1 basis. 8.4.3. Where the agreement with the merchant provides for keeping the amount by the PA till expiry of refund period, the payment to the merchant shall be not later than on Tr + 1basis. 8.5. Credits towards reversed transactions (where funds are received by PA) and refund transactions shall be routed back through the escrow account unless as per contract the refund is directly managed by the merchant and the customer has been made aware of the same. 8.6. At the end of the day, the amount in escrow account shall not be less than the amount already collected from customer as per 'Tp' or the amount due to the merchant. 8.7. PAs shall be permitted to pre-fund the escrow account with own / merchant's funds. However, in the latter scenario, merchant's beneficial interest shall be created on the pre-funded portion. 8.8. The escrow account shall not be operated for 'Cash-on- Delivery' transactions. 8.9. Permitted credits / debits to the esc .....

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..... y are maintaining the escrow account and update the same from time to time. The bank shall ensure that payments are made only to eligible merchants / purposes. There shall be an exclusive clause in the agreement signed between the PA and the bank maintaining escrow account towards usage of balance in escrow account only for the purposes mentioned above. 8.15. No interest shall be payable by the bank on balances maintained in the escrow account, except when the PA enters into an agreement with the bank maintaining the escrow account, to transfer "core portion" of the amount, in the escrow account, to a separate account on which interest is payable, subject to the following: 8.15.1. The bank shall satisfy itself that the amount deposited represents the "core portion" after due verification of necessary documents. 8.15.2. The amount shall be linked to the escrow account, i.e. the amounts held in the interest-bearing account shall be available to the bank, to meet payment requirements of the entity, in case of any shortfall in the escrow account. 8.15.3. This facility shall be permissible to entities who have been in business for 26fortnights and whose accounts have been duly a .....

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..... s from customers in their accounts before they are transmitted onwards to merchants or other beneficiaries. 119. What the Court seeks to emphasise is that the PSS Act is a legislation which appears to be principally concerned with regulating the activities of Intermediaries who are engaged in the receipt and handling of funds from customers, their onward transmission and the account settlement and reconciliation process which is to be undertaken as a consequence of those activities. The aforesaid process also entails settlement and netting practices being adopted since undisputedly the funds received from customers would, at least for some period of time, be held in the hands of the Intermediary or the PA. OPGSPs', on the other hand, are in clear terms acknowledged to be merely technology providers. OPGSPs' are accepted to be entities who are not involved in the direct handling of funds. It becomes significant to note that the Guidelines also reiterates this distinction which is recognised to exist between PAs and OPGSPs. 120. The fact that the PSS Act was never intended to extend to OPGSPs' is also evident from paragraph 2 of the covering letter under which the aforesaid Guideli .....

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..... e regulation of these activities that the PSS Act mandates the maintenance of settlement and escrow accounts, a process of netting and settlement being undertaken periodically, the creation of a consumer protection fund and other regulatory measures embodied therein. 124. The circulars and directives of the RBI referred to and noticed above, and which have undisputedly been issued with reference to the powers conferred on it by virtue of being the Designated Authority under the PSS Act, also seek to regulate and extend to the activities of Intermediaries, PAs' and AD Banks, all of which are directly engaged in the handling and movement of funds. It is for the aforesaid reason that those circulars while peripherally noticing the activities of OPGSPs' only mandate certain "baseline" measures to be adopted. The stand as was taken by RBI in the Abhijit Mishra proceedings when it asserted that PayPal was not recognised to be a payment system operator must therefore and consequentially be understood in the aforesaid light. 125. Regard must also be had to the fact that the remittance of funds electronically is comprised of various sub-elements and may involve numerous parties and entiti .....

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..... theme and ethos of the PMLA as opposed to an answer that is beclouded by how that subject is treated under the PSS Act. Approaching the issue from any other angle would in fact fall foul of certain well accepted tenets of statutory interpretation as would be manifest from the discussion which follows in the latter parts of this decision. L. PAYMENT SYSTEM UNDER THE PMLA 128. That takes the Court to the heart of the matter, namely, the interpretation of the relevant provisions of the PMLA. As was noted hereinabove Section 2(1)(rb) defines a "payment system" to be one which enables payment to be effected between a payer and a beneficiary. On a plain reading of Section 2(1)(rb) and bearing in mind that it uses the expression "enables" it would appear that any system which facilitates the transfer of funds from a payer to a beneficiary would fall within the sweep of that provision. It becomes imperative to further note that Section 2(1) (rb) further stipulates that such a system may involve either clearing, payment or settlement services or for that matter all of them compendiously. A system which facilitates a transaction between a payer and a beneficiary may thus involve elements .....

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..... defrauding banks and financial institutions and its object was to see that the properties of those who were involved shall be appropriated for the discharge of liabilities of not only banks and financial institutions but also other governmental agencies. In construing the statute of this nature the court should not always adhere to a literal meaning but should construe the same, keeping in view the larger public interest. For the said purpose, the court may also take recourse to the basic rules of interpretation, namely, ut res magis valeat quam pereat to see that a machinery must be so construed as to effectuate the liability imposed by the charging section and to make the machinery workable. 77. The statutes must be construed in a manner which will suppress the mischief and advance the object the legislature had in view. A narrow construction which tends to stultify the law must not be taken. Contextual reading is a well-known proposition of interpretation of statute. The clauses of a statute should be construed with reference to the context vis-à-vis the other provisions so as to make a consistent enactment of the whole statute relating to the subject-matter. Furthermo .....

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..... ime created by Section 3 thereof. The various declarations, disclosures and reporting measures put in place by Sections 11A, 12, 12A, 12AA are all aimed towards discovery and prevention of fraudulent and suspicious transactions. Those provisions are concerned with collation of data, a centralized analysis thereof all of which would then enable the authorities to detect patterns of suspicious financial flows and assist in eradicating the scourge of money laundering. Of equal significance are the provisions comprised in Chapter IX which deals with reciprocal arrangements and gives teeth to the collaborative resolve of nations to tackle the complexities surrounding money laundering. The aspect of collaboration backed by cohesive and collective action amongst various agencies forms the subject matter of Section 72A when it provides for the constitution of an Inter-Ministerial Coordination Committee. The aforesaid discussion indubitably brings to the fore the regulatory aspects of the legislation and establishes that the PMLA goes far beyond being intended to be a mere penal statute. This aspect has also been noticed by the Supreme Court in Vijay Madanlal. It is these salutary objective .....

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..... cturers Association, AIR 1980 SC 387. To include; to contain; to imply. 134. The Oxford English Dictionary [Second Edition] ascribes the following meaning to the words "enable" and "involve": - "enable (E'neib(ǝ)l), v. Forms: 5-6 enhable, -bel, 6 enhabile, inhable, -bile, 6-8 inable, 5- enable. [f. EN-+ABLE a.: cf. ABLE v.] 2. To authorize, sanction, empower; to give legal power or license to. Const. to with inf. +3. a. To give power to (a person); to strengthen, make adequate or proficient. Obs. or arch. b. To impart to (a person or agent) power necessary or adequate for a given object; to make competent or capable. Const. for, to, unto. rare in mod. use. c. To supply with the requisite means or opportunities to an end or for an object. Const. to with inf. 5. a. To make possible or easy; also to give effectiveness to (an action). enablement (e'neib(ǝ)lmǝnt). [f. ENABLE v. + -MENT.] The action or means of enabling. 2. a. The process of rendering able, competent, or powerful; the state of being so; concr. something by which one is enabled, a qualification. b. Support, sustenance, maintenance. rare. 3. An equipment, implement. Cf. ENABLE .....

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..... n contrary to what has been noted above, would not only scuttle and impede the measures liable to be deployed but also obstruct and hamper data collection and analysis which constitute critical elements of AML measures. The imperatives of those measures being borne in consideration is clearly merited in light of the interpretative principles which were commended for the consideration of the Court by FIU-IND. 137. Undoubtedly, the technology on which the platform of PayPal rests enables the transfer of money between parties at different ends. The mere fact that the said platform also interacts with AD Category Banks or other PAs' would not detract from the platform of PayPal being otherwise understood and recognised to be a system which enables payment and one which is concerned with money transfer operations. The Court deems it apposite to emphasise that bearing in mind the objectives underlying the promulgation of PMLA and the activity that it seeks to regulate and penalise, there appears to be no legal justification to interpret Section 2(1)(rb) to embrace only those entities which are directly engaged in the handling, retention or transfer of funds. 138. Regard must be had to .....

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..... ther onboards the importer nor is it engaged in the actual handling of funds. Insofar as the latter aspect is concerned, this Court has come to the definitive conclusion that the actual handling of funds cannot be decisive of whether an entity would fall within the ambit of 2(1)(rb). This is notwithstanding certain facts which have been alluded to by the FIU-IND and stem from the exchange of e-mails between it and Citibank. 141. It would be pertinent to recall that Citibank acts as the nodal bank of PayPal in accord with the Guidelines as framed by the RBI. In its email of 20 July 2019, Citibank had apprised FIU-IND that payments due to Indian exporters are transferred from a PayPal "offshore account" to a Citibank NOSTRO USD Export Collection Account. In yet another e-mail dated 20 January 2021 it apprised FIU-IND that the details of actual remitter did not form part of the original fund transfer instructions received by it and therefore could not be included in the CBWTR reports submitted for the relevant period. It also apprised FIU-IND that it has now put in place a system to obtain end remitter data for all reportable transactions from PayPal. 142. These emails would appear .....

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..... Act, 1940 should not be blindly adopted for the purposes of the Excise Act. 145. This principle was lucidly explained by the Supreme Court in Maharaj Singh v. State of U.P. (1977) 1 SCC 155, as would be evident from the following passage of that decision:- "14. The legislative project and the legal engineering visualised by the Act are clear and the semantics of the words used in the provisions must bend, if they can, to subserve them. To be literal or be blinkered by some rigid canon of construction may be to miss the life of the law itself. Strength may be derived for this interpretative stand from the observations in a recent judgment of this Court [Thiru Manickam & Co v. State of TN, CA 1528 of 1971, decided on October 26, 1976] : "A word can have many meanings. To find out the exact connotation of a word in a statute, we must look to the context in which it is used. The context would quite often provide the key to meaning of the word and the sense it should carry. Its setting would give colour to it and provide a cue to the intention of the legislature in using it. A word, as said by Holmes, is not a crystal, transparent and unchanged; it is the skin of a living thought a .....

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..... he contrary intention appears"; or "if not inconsistent with the context or subject-matter". "Parliament would legislate to little purpose," said Lord Macnaghten in Netherseal Co. v. Bourne [(1889) LR 14 AC 228 : 59 LJ QB 66 : 61 LT 125], "if the objects of its care might supplement or undo the work of legislation by making a definition clause of their own. People cannot escape from the obligation of a statute by putting a private interpretation on its language." The courts will always examine the real nature of the transaction by which it is sought to evade the tax." 148. The aforenoted decisions thus speak of words in a statute being liable to be interpreted in the context and setting in which they are used. In fact, the aforesaid precedents also speak of situations where a particular word as occurring in a statute may be intended to be accorded a totally different meaning when used in separate provisions of the same legislation itself. In any case both D.N. Banerjee as well as Shree Baidyanath in unambiguous terms warn us of the folly of a blind ascription of meaning to words appearing in two separate statutes. The adoption of such a course would be more injudicious and unwise .....

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..... oney services, it also engages in foreign exchange currency conversions, payment in person and touch free payment solutions as well as remittance and receipt of payments for commercial and personal transactions which occur both on a domestic and at the international level. Similar functions and services are provided by PayPal in Australia. In Singapore, Japan and Malaysia apart from the aforesaid services, PayPal also provides what has now come to be commonly described as digital "wallet" services. The submission in essence was that since there is no similarity in the nature of services that are provided by PayPal in those jurisdictions when compared with its operations as an OPGSP in India, the statutory compliances that it adheres to cannot be determinative of the question which stands raised. 152. The Court finds merit in the submission so addressed and is of the considered opinion that the question of whether PayPal is liable to be treated as a payment system operator must fundamentally be answered on a construction of Section 2(1)(rb) and (rc) of the PMLA alone and not by its conduct in other jurisdictions where the gamut of services provided by it range far wider than those .....

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..... f Rs. 1,00,000/- for each of the three alleged offences and that too for every month stretching over a period of 32 months. According to Mr. Poovayya, the quantification of penalty is thus clearly rendered unsustainable. It was additionally submitted that it is well-settled in law that the imposition of penalty would be justified only if an entity fails to discharge a statutory obligation and provided it is established that it had deliberately chosen to act in defiance of the law or was guilty of dishonest conduct. 155. Mr. Poovayya submitted that bearing in mind the nature of the challenge which was raised by PayPal and the substantive objection taken with respect to the construction to be accorded to the provisions of the PMLA, it cannot possibly be said that its conduct was either deliberate, contumacious or dishonest. To buttress the aforesaid submissions, Mr. Poovayya firstly drew the attention of the Court to the following principles as laid down in Hindustan Steel Ltd. vs. State of Orissa (1969) 2 SCC 627:- "8. Under the Act penalty may be imposed for failure to register as a dealer - Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty doe .....

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..... g between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act." 157. As would be evident from a reading of the impugned order, FIU-IND has found PayPal guilty of the following three violations: - (a) Wilful avoidance of its obligations under Section 12 by not registering as a reporting entity, (b) Failure to register and communicate the name and address of its Principal Officer to FIU-IND in violation of Rule 7 of the 2015 Rules and (c) Failure to register and communicate the name and address of its Designated Director to FIU-IND under the aforenoted Rule. 158. The impugned order has then proceeded to compute the penalty as being payable for each month of the 32-month period commencing from 16 March 2018 when PayPal was first placed on notice. The computation of penalty was assailed with Mr. Poovayya contending that there was no justification for PayPal being foisted with the maximum penalty provided for in that provision. Quite apart from the above, it was submitted .....

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..... the constitution of a committee of experts. This too would seem to indicate that the issues raised by PayPal were not free from doubt and that its challenge was found to, prima facie, raise triable questions. 162. The Court also cannot lose sight of the fact that the stand of PayPal as evident from its communications with FIU-IND was essentially collaborative and a testament to its intent to arrive at a mutually acceptable solution. This is also manifest from its approach of both parties identifying a "mutually acceptable mechanism" and the suggestion of three models of information sharing forming part of their letter dated 20 December 2019. 163. Proceeding then to the issue of quantification, the Court notes that Section 13(2)(d) does not prescribe or stipulate the imposition of penalty for each month of default. It also does not speak of non- compliance amounting to a continued infraction or one which may warrant imposition of penalty on a monthly basis. The Court also finds merit in the challenge raised with respect to the maximum penalty being imposed on the ground of an abject failure on the part of the respondent to confer consideration on the nature of questions which were .....

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